Can gaming consoles change the way we chat online?

In Episode 5 of Innovation Cities, we take a look at how cutting edge technology is going to revolutionize our homes.

Home entertainment has come a long way since the days of Pacman and Pong. From the latest instalment of "Grand Theft Auto" to Massive Multiplayer Online Role Playing Games (MMORPGs) such as "World of Warcraft", today's gamers are treated to vivid graphics and immersive worlds.

Now the companies behind the consoles are looking to bring gaming technology into video calls, making them a fully immersive experience.

The recent launches of Sony's PlayStation 4 and Microsoft's Xbox One were events in themselves, sparking overnight queues. To date, over a million PlayStation 4s have been sold, while over two million gamers have snapped up the Xbox One. Gaming is big business: Activision Blizzard, the company behind titles such as Call of Duty and World of Warcraft, posted revenues of $4.86 billion in 2012.

"Gaming has exploded in the last 10 years," Alex Simmons, Editor in Chief of video games website IGN.com, told CNBC's Innovation Cities. "Just to put it into context, over 50 percent of Americans play games on dedicated games machines. It's as part of ordinary, everyday life as, you know, reading a book or watching a movie. But video games are really bringing it all together into one package."

Gaming now possesses more than the power simply to entertain us – it also has the potential to change our domestic lives. Microsoft is developing technology that it predicts will revolutionize the way in which we connect with friends and loved ones.

The company is working on a 'Magic Window' which will enable people to have conversations via a large screen – or even a picture frame – that look and feel real, but are actually taking place thousands of miles apart, in a front room or kitchen. This may all sound like a conventional webcam chat, but Microsoft say it's much more than that.

Robyn Beck | AFP | Getty Images

The new Kinect uses a 1080p color camera and an active infrared camera to allow for precise movement tracking.

"We want to create the sensation…that it doesn't look like a picture frame, instead it actually looks like the person's inside the television," Steve Batiche, Director of Research at Microsoft's Applied Sciences Group, told CNBC.

"And so we have a Kinect camera looking at you, creating a three dimensional image. And if I'm moving left and right, and side to side, up and down, then I can actually look around the room as if I was looking through an actual window," he added.

The company also envisions the use of augmented reality in these conversations. It will complement a users' experience by letting them draw objects onto their 'window' that are visible to the person they are talking to.

"What we're seeing is a peek into what the future might look like when we have new technologies woven into our homes," Daniel Robbins, from Microsoft's Envisioning Center, told CNBC. "We can now become part of someone else's environment, we can share activities, we can share games, we can move information from the physical to the digital and back and forth," he added.